The euro built on earlier gains against the dollar on Thursday, supported by expectations that the European Central Bank will next raise interest rates in May, and a perception that US interest rates may be peaking soon.
The dollar had rallied on Tuesday after the Federal Reserve raised rates to 4.75 percent and signalled that at least one more rise would be on the cards. But gains have been eroded since then, with markets speculating that policy could well peak in May at 5 percent.
With a top for US rates in sight, the euro has benefited from growing expectations of more tightening by the ECB in May and throughout this year, fuelled by strong German business confidence data and eurozone money supply numbers this week.
"Generally speaking we're seeing an ongoing shift in the cyclical advantage from the US towards the euro area," Steven Saywell, chief currency strategist at Citigroup, said.
"This trend that we've seen of the ECB continuing to signal that it will be tightening policy as we get close to the end of the Fed tightening cycle is consistent with the dollar having already peaked and the euro doing pretty well," he added.
By 1217 GMT, the euro was half a percent higher on the day versus the dollar at $1.2095, but still mired in the $1.18-1.22 range of the past two months. It was 0.16 percent firmer against the yen at 141.91 yen, just off a three-week high of 142 hit earlier in the session. Despite strong eurozone data and upbeat comments from ECB policymakers, analysts polled by Reuters gave just a 20 percent chance of a hike at the bank's next meeting, on April 6. But most do now expect a move up to 2.75 percent in May.The euro's progress was also helped by continued market talk that the United Arab Emirates would convert more of its reserves of roughly $23 billion into euros, traders said. The UAE said earlier in the month that it was looking to convert up to 10 percent of its reserves.
Eurozone data on Thursday showed that French consumer morale fell in March amid wide-spread protests against a government-backed youth jobs law. German unemployment, meanwhile, unexpectedly rose by 30,000 in March from the previous month, the German Labour Office said.
The euro was little moved by the numbers.
The yen gained 0.6 percent against the dollar at 117.77 yen, having rallied sharply earlier this week due to repatriation flows ahead of the fiscal year-end on March 31.
Elsewhere, the Icelandic crown gained sharply against the euro and dollar after the central bank raised rates by an aggressive 75 basis points to 11.50 percent. The crown has slumped over the past month on expectations of slower growth and possibly even a recession and analysts do not expect it to get much lasting support from the rate hike.
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